ANJALI SINGH

THEORY OF UNBALANCED

GROWTHProf. A.O. Hirschman

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INTRODUCTION This theory suggests to select priority sectors

or strategic sectors and invest heavily on them and the other sectors would automatically develop.

As UDCs are not capable of investing in all the sectors simultaneously due to lack of resources and many other factors.

The best strategy of development is the creation of imbalances in the economy, since it is observed that the efforts to correct disequilibrium constitutes a major step for the progress of economy.

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INTRODUCTION

Investment should me made in some sectors rather than all.

According to hirschman, development Is a chain of disequilibrium which must be kept alive rather than eliminate the disequilibrium of which profits and losses are symptoms in a comptt. Economy.

If the economy is to be kept moving ahead, the task of development policy is to maintain tensions, disproportions and disequilibrium.

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CLASSIFICATION OF SERIES OF INVESTMENT Convergent Series of Investment : it implies

sequence of creation and appropriation of external economies. Therefore, investment made in these projects appropriate more economies than they create.

Influenced by profit motive. Undertaken by the Private entrepreneurs. Convergent series of investment are made

directly productive activities. Directly productive activities include

manufacturing.

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CLASSIFICATION OF SERIES OF INVESTMENT Divergent Series of Investment : It refers to

those projects which appropriate less economies then they create.

Influenced by objective of social desirability. Such investments are taken up by Public

agencies divergent series of Investment have greater

social desirability in social overhead. SOC implies all those basic services without

which primary, secondary and tertiary productive activities cannot function.

It includes investment in education, public health, public utilities, infrastructure development

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Hirschman Says, a choice has to be made between SOCs and DPAs.

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CASE-I : UNBALANCING THE ECONOMY WITH SOC The correct approach for economic

development is, to unbalance the economy to initiate investment in SOC.

Some SOC investment is required as a pre-requisite of DPA investment.

Investment first should be made for the welfare of the society.

It is pressure relieving investment or development via excess of SOC.

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CASE-II : UNBALANCING THE ECONOMY WITH DPA This process of development is called

development via shortage of SOC.

First investment is made in the DPA.

Shortage of SOC will raise the cost of production and the price also.

There will be pressure on the Government to put SOC in place.

Due to internal pressure and incentive the rate of economic growth tends to be faster.

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THE PATH TO DEVELOPMENT

EXPLANATIONGRAPH

45 degree line shows ideal balanced growth of DPA and SOC.

AA, BB, CC are isoquant curves for DPA and SOC that shows there various combinations that gives same GNP at any pt of time.

Higher curve, higher GNP D, G, K optimal points.

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Here, prof. Hirschman makes two Assumptions:

a) SOCs and DPAs cannot increase at the same time.

b) Investment should be such that it maximizes induced decision making.

Expanding SOC, development path DEGHK.

When investment in SOC increases from D to E, investment in DPA increases from D to F until the balance is restored at G, which is on higher isoquant.

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If the case II is selected, the development path will be DFGJK.

When DPA investment increases from D to F, SOC increases from D to E until eqm. is restored at G, which is on a higher isoquant, BB.

Whole economy will be on a higher level of output, which would encourage more investment in DPAs.